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12/28/2012 @ 12:55PM268 views

Budget-Cutting Effort Leaves Anti-Cartel Efforts Shorthanded

This article is provided by mergermarket‘s sister product, PaRR (Policy and Regulatory Report)— a newly launched product of The Mergermarket Group providing proprietary intelligence and research on competition law and sector-specific regulatory changes around the world.

The decision by the Department of Justice (DoJ) to save tax dollars by closing four antitrust offices outside of Washington has dramatically cut the antitrust division’s ability to investigate and prosecute cartels, as those government officials who remain are swamped by a deluge of cartels in the car parts industry, critics have warned.

The move to close offices in Philadelphia, Cleveland, Atlanta and Dallas was initiated by former Assistant Attorney General Christine Varney as she was departing the agency to work at Cravath Swaine & Moore.

According to sources, Deputy Assistant Attorney Scott Hammond, the senior staff lawyer who has run the criminal enforcement team for a more than a decade, vehemently protested the move which is now being finalized. Compared to a year ago, only about half the number of lawyers and staff are now dedicated to ending cartels, according to former DoJ attorneys.

The DoJ’s antitrust division did not respond to requests to comment for this story. Former staffers who opposed the cuts said that while everyone in a closing office had an option to relocate, only one lawyer from the Philadelphia office went to the New York antitrust office and they could “count on one hand” the lawyers who actually uprooted their lives and moved from the closing offices to another location.

The chaos comes at a time when the DoJ Antitrust Division is without a leader. Although William Baer, an antitrust lawyer who leads the practice group at Arnold & Porter has been nominated, he has not yet been confirmed by the Senate.

At a time when the agency is prosecuting as many as 60 cartels in the automotive parts industry alone, an investigation they have described as the largest in the history of anti-cartel enforcement in the US, there are fewer lawyers doing the work than there have been in decades, according to former agency lawyers who asked not to be named.

And the car parts matter highlights several problems. First, a record number of companies are involved, with dozens looking for amnesty under the DoJ’s “Amnesty Plus” program, which allows participants involved in a cartel to get a lighter punishment if they admit their participation in another cartel.

For example, a company accused of participating in a cartel in the market for windshield wipers would face a lower fine if it acknowledged it was part of a cartel involving another product, such as floor mats. Someone in the floor mat industry could then get a break by informing about a head lamps cartel. Virtually all parts of a car are now believed to have been involved in some cartel activity, the lawyer said. And the workload increase because of the combination of the car parts cases, paired with half the manpower, has been significant.

“People are complaining they can’t even get a meeting for their clients to discuss an amnesty application,” because so many lawyers left the division and the caseload has swelled, the lawyer said.

To make things worse, the cases are being made based on the testimony of rivals; there’s “no ability to independently investigate the cases,” according to a lawyer. That is because the car parts cartels that raise prices for American consumers were based in Japan. The meeting notes are in Japanese, and company records are as well. Translations are expensive and because of the statute of limitations, US lawyers have only five years from the last activity of the cartel to indict participants.

As a result, the lawyer said, guilty pleas are most likely and companies that choose to litigate are far more likely to win some concessions, like fewer individuals convicted or a lower fine than the DoJ had been hoping to extract.

And when it comes to other matters, such as the investigation of domestic cartels, where no one is ratting out their rivals, it is unlikely that there will any progress. “Right now it is impossible for there to be new investigations,” he said. “The investigations themselves were a deterrent.”

Now, he said, although the DoJ can say they are getting fines and sending people to jail for antitrust violations, the statistics do not paint a complete picture.

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